United States District Court, S.D. New York.
FRED C. KRIEGEL, Plaintiff,
KATHLEEN DONELLI, as Preliminary Executor under the Last Will and Testament of Richard A. Donelli, Defendant.
OPINION AND ORDER
EDGARDO RAMOS, District Judge.
This diversity action arises from the sale of a dental practice in Hartsdale, New York after the death of its owner, Dr. Richard A. Donelli ("Dr. Donelli"). On August 25, 2011, Fred C. Kriegel ("Plaintiff" or "Dr. Kriegel") purchased the practice from Kathleen Donelli ("Defendant" or "Mrs. Donelli"), Dr. Donelli's widow and the executor of his estate. On December 14, 2011, Dr. Kriegel commenced this lawsuit alleging that Defendant induced him to buy the practice by failing to disclose that Tara Magnotta, a valued dental hygienist and long-term employee, intended to leave the practice if Plaintiff purchased it. Indeed, Ms. Magnotta resigned soon after Plaintiff assumed control of the practice.
Dr. Kriegel seeks rescission of the Asset Purchase Agreement ("APA") through which he acquired the practice, or alternatively, rescissionary damages, under breach of contract (First Cause of Action) and fraud in the inducement (Second Cause of Action) theories of New York law. Plaintiff claims that Defendant's non-disclosure breached a warranty in the APA which specifically required the Defendant to affirm that, to her knowledge, there was "no material fact directly relating to the business operations, conditions, or prospects of the Practice that materially and adversely affects the same, of which Purchaser [the Plaintiff] has not been made aware." Plaintiff also claims that Defendant misrepresented that "employees of the Practice would stay on after the sale was consummated." Compl. ¶¶ 4-39, Doc. 1.
Currently pending before the Court is Defendant's motion for summary judgment on all claims, pursuant to Fed.R.Civ.P. 56. Doc. 13. Mrs. Donelli principally asserts that she did not make any material misrepresentation or omission, that Dr. Kriegel's fraud claim must be dismissed as it is duplicative of his contract claim, that his alleged reliance on her purported misrepresentations about Ms. Magnotta's continued employment is unreasonable as a matter of law, and that Dr. Kriegel is not entitled to rescission or more than nominal damages. Defendant also seeks reasonable attorney's fees.
For the reasons set forth below, Defendant's motion is GRANTED in part and DENIED in part.
I. Factual Background
Unless otherwise noted, the following facts, taken from the parties' Local Rule 56.1 Statements, are undisputed.
A. The Sale of Dr. Donelli's Dental Practice to Dr. Kriegel
Dr. Donelli owned and operated a dental practice known as Hartsdale Dental Group, P.C., d/b/a RD Dental Associates, in Hartsdale, New York ("RD Dental"). Def.'s 56.1 Stmt. ¶ 3, Doc. 16. Dr. Donelli unexpectedly passed away on July 24, 2011. Id. ¶¶ 1-2. Defendant Kathleen Donelli, his wife, served as the executor of his estate. Defendant sought to sell RD Dental soon after her husband's death. Mrs. Donelli's son, Charles Mansfield, assisted her in that regard by identifying and negotiating with potential buyers. Id. ¶ 5. Mr. Mansfield also assisted Defendant by managing the daily affairs of the practice and recruiting dentists to work there on a per diem basis. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 2, Doc. 23.
Dr. Kriegel, the Plaintiff, is also a dentist. Feureisen Decl. Ex. A, Doc. 14. Dr. Kriegel met Dr. Donelli in the 1980s through the Scarsdale Dental Association and spoke with him on occasion at the Scarsdale Country Club. Kriegel Aff. ¶ 4, Doc. 17. Dr. Kriegel claims that he invited Dr. Donelli to have lunch with him on June 18, 2011 to discuss "a potential business relationship." Id. Dr. Kriegel learned that Dr. Donelli passed away when he called Dr. Donelli's office on July 28, 2011. Id. ¶ 5. Approximately one week after Dr. Donelli's death, Plaintiff contacted Mr. Mansfield and offered to help finish some open cases at RD Dental. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 3. In August 2011, Dr. Kriegel began working at RD Dental on a pro bono, limited basis (Def.'s 56.1 Stmt. ¶ 8; Pl.'s 56.1 Stmt. Add'l Facts ¶ 10, Doc. 20; Kriegel Aff. ¶ 6) and became interested in purchasing RD Dental. Pl.'s Cntrstmt. ¶ 9, Doc. 20. Two other dentists had also been considering purchasing RD Dental; however, those deals fell through. Def.'s 56.1 Stmt. ¶ 7. Upon learning from Mr. Mansfield that a potential deal for the sale of the practice had failed, Dr. Kriegel made an offer to purchase RD Dental for $300, 000.00. Kriegel Aff. ¶ 8; Pl.'s Stmt. Add'l Facts ¶ 13.
Mrs. Donelli met with Dr. Kriegel to discuss his offer on August 21, 2011. Mrs. Donelli told Dr. Kriegel that she would accept his offer, but specified that the deal "could not have any financial contingencies and had to be consummated by... August 25[, 2011], or the acceptance of the offer would be withdrawn." Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶¶ 14-15. Between August 21 and August 25, 2011, Dr. Kriegel communicated with Mr. Mansfield "almost daily" regarding the purchase of RD Dental. Id. ¶ 19. During that time, Dr. Kriegel also signed nonsolicitation and confidentiality agreements with RD Dental, directed his accountant to review the practice's tax history and billing system, and retained attorneys to advise him on his planned purchase. Def.'s 56.1 Stmt. ¶¶ 10-12.
As part of the contract for the sale of RD Dental, Dr. Kriegel specifically wanted to obtain a non-competition agreement from Tara Magnotta, a dental hygienist who, as of August 2011, had been employed with the practice for approximately twenty years. Def.'s 56.1 Stmt. ¶ 16; Kriegel Aff. ¶ 12. Dr. Kriegel did not seek to obtain non-competition agreements from any other staff members. Id. Unbeknownst to Dr. Kriegel, on August 4, 2011, Ms. Magnotta had sent an email to Defendant stating that she did not want her name or her continued employment with RD Dental to be included in any contracts for its sale. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 9; Harfenist Decl. Opp. Def.'s Mot. Summ. J. ("Harfenist Decl.") Ex. F, Doc. 18. On an unspecified date that August, prior to August 25, 2011, Dr. Kriegel claims, and Mrs. Donelli disputes, that he voiced to Mr. Mansfield a concern that "a significant portion of the patients" at RD Dental would leave if Ms. Magnotta departed and began working elsewhere. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 20 (citing Kriegel Aff. ¶ 12). Mrs. Donelli acknowledges that Dr. Kriegel was concerned that Ms. Magnotta might leave the practice, but admits only that Dr. Kriegel expressed to Mr. Mansfield that Ms. Magnotta "may not conform to his style of practicing dentistry." Id.
The parties agree that Mr. Mansfield advised Plaintiff that Ms. Magnotta said she would stay at RD Dental for at least thirty days after the sale of the practice. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 21. Dr. Kriegel further claims, and Mrs. Donelli disputes, that Mr. Mansfield "gave [Dr. Kriegel] his personal assurance that he had spoken with [Ms. Magnotta] and the other RD Dental staff members, " and that "they were all loyal to the Practice, loved the patients and would never leave, especially because they were being paid such high salaries." Id. (citing Kriegel Aff. ¶ 12 (emphasis added)).
Dr. Kriegel concedes that he did not ever directly discuss Ms. Magnotta's continued employment at RD Dental with her prior to his purchase of the practice. However, during negotiations regarding the final terms of the sale on the closing date, August 25, 2011, Dr. Kriegel formally demanded that Mrs. Donelli agree to "cause [Ms.] Magnotta to sign a noncompete agreement, " and "that he receive a non-compete from Ms. Magnotta as part of the contract of sale of RD Dental." Def.'s 56.1 Stmt. ¶ 15. In response, Mrs. Donelli "unequivocally refused to agree to have Ms. Magnotta sign [a] non-compete agreement, " and "told [Dr.] Kriegel that his demand for a non-compete from Ms. Magnotta was a deal breaker." Id. Mrs. Donelli informed Dr. Kriegel that Ms. Magnotta was an at-will employee and, as such, could not be forced to do anything. Id. ¶ 17. Indeed, Mrs. Donelli "stormed out of the room" for a time after Plaintiff requested the non-competition agreement. Kriegel Decl. ¶ 13.
Mrs. Donelli ultimately returned to the meeting,  Pl.'s Opp. 5, Doc. 19 (citing Kriegel Decl. ¶ 13), and Plaintiff ultimately did not insist on a non-competition agreement for Ms. Magnotta. Feureisen Reply Decl. Ex. B. (Mansfield Dep. 102:1-103:8); Feureisen Decl. Ex. M (Kriegel Dep. 73:11-73:21) (testimony acknowledging that executed APA did not include noncompetition and non-solicitation agreements for RD Dental employees). Notwithstanding his inability to obtain a non-competition agreement for Ms. Magnotta from Mrs. Donelli, Dr. Kriegel signed the APA and acquired RD Dental on August 25, 2011. Pl.'s Cntrstmt. ¶ 19; Kriegel Decl. ¶ 13; Feureisen Decl. Ex. A (APA). Among other things, the APA states that:
Effective upon the Closing Date, [RD Dental] shall terminate the employment of all Practice personnel, it being understood that the Purchaser shall be free to employ or retain any or all such personnel at Purchaser's sole discretion. [RD Dental] shall be responsible for all salary, benefits obligations and any other employment liabilities accruing up to the Closing Date and Purchaser shall be responsible for the same accruing on or after the Closing Date with respect to such personnel hired or retained by Purchaser.
Feureisen Decl. Ex. A (APA § 1.7). Section 12 of the Rider to the APA further specifies that "Seller agrees to cooperate with Purchaser in retaining as many of the existing employees of the Practice as Purchaser wishes to retain. However, Purchaser is not obligated in any way to continue the employment of any of Seller's employees." Feureisen Decl. Ex. A (Rider § 12). Additionally, and of particular relevance to Plaintiff's claims, Section 10(c) of the Rider to the APA ("Section 10(c)") specifies that:
No statement, warranty or representation by Seller in this Agreement contains any untrue statement of material fact or omits to state any material fact necessary in order to make the statements made, in light of the circumstances under which such statements are made, not misleading. To the knowledge of the Seller, there is no material fact directly relating to the business operations, conditions, or prospects of the Practice [RD Dental] that materially and adversely affects the same, of which Purchaser has not been made aware.
Feureisen Decl. Ex. A (Rider § 10(c)).
Dr. Kriegel formally assumed control of RD Dental on August 29, 2011. Def.'s 56.1 Stmt. ¶ 20. Plaintiff claims, and Defendant disputes, that, after he signed the APA on August 25, 2011, but before he assumed control of the practice on August 29, 2011, he sought and obtained additional "assurances" from Mr. Mansfield that Ms. Magnotta did not intend to leave RD Dental. Kriegel Aff. ¶ 14; Pl.'s 56.1 Stmt. Add'l Facts ¶ 28. Mrs. Donelli claims that Mr. Mansfield only offered to ask Ms. Magnotta if she would sign a non-compete agreement. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 28.
On September 2, 2011, Ms. Magnotta gave two weeks' notice to Dr. Kriegel via email. Def.'s 56.1 Stmt. ¶ 25; Kriegel Aff ¶ 14. While Ms. Magnotta offered to work for Plaintiff for an additional two weeks after her resignation date, he asked her not to return. Def.'s 56.1 Stmt. ¶ 25.
Plaintiff and Defendant sharply dispute whether, before Dr. Kriegel purchased RD Dental on August 25, 2011, (1) Ms. Magnotta intended to leave RD Dental, and (2) Defendant knew of, but failed to disclose, Ms. Magnotta's intention to depart. Mrs. Donelli contends, and Dr. Kriegel disputes, that "Ms. Magnotta did not know whether she would stay or leave RD Dental after the sale, or for how long she might stay." Def.'s Mem. L. 10, Doc. 15. According to Mrs. Donelli, at the time of the sale, Ms. Magnotta "had an open mind" about staying at RD Dental (Def.'s 56.1 Stmt. ¶ 23; Feureisen Decl. Ex. L (Magnotta Dep. 136:9-136:20)), but "several incidents" that Ms. Magnotta observed between Plaintiff and patients during the week of August 29, 2011 caused her to resign. Def.'s 56.1 Stmt. ¶¶ 24, 26. Regarding her own knowledge of Ms. Magnotta's intention, Defendant testified that she never had "any discussions with Ms. Magnotta where she spoke... [about] the ramifications of what would happen if Dr. Kriegel were to purchase [RD Dental]." Feureisen Reply Decl. Ex. A (Donelli Dep. 74:22-75:3). Defendant also testified that, prior to August 25, 2011, she had no reason to believe that Ms. Magnotta harbored "negative feelings" toward Plaintiff ( id. at 74:18-74:21), and claims that Ms. Magnotta never "at any point" advised Defendant or Mr. Mansfield that she intended to leave. Def.'s Mem. L. 9 n.3; Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 7.
Contrariwise, Dr. Kriegel asserts that Ms. Magnotta informed Mrs. Donelli and Mr. Mansfield that she did not intend to stay at RD Dental-and that Mrs. Donelli failed to apprise him of this fact prior to the sale. Def.'s Resp. Pl.'s 56.1 Stmt. Add'l Facts ¶ 6. Plaintiff claims that, contrary to Mr. Mansfield's "assurances, " Ms. Magnotta "had several conversations with [him], both before and after the signing of the APA, where she told [Mr. Mansfield] that her intentions were not to stay if [Plaintiff] purchased the practice." Pl.'s 56.1 Stmt. Add'l Facts ¶ 7 (emphasis added). Dr. Kriegel also claims that, after Ms. Magnotta's resignation, other RD Dental staff members told him that Ms. Magnotta "had been vocal about the fact that if I purchased the practice she would not stay on at RD Dental." Kriegel Aff. ¶ 16.
As for Ms. Magnotta's own expression of her intentions, she signed an affidavit in March 2013,  in which she stated that, "[o]nce I learned that [Dr. Kriegel] was the purchaser [of RD Dental], I advised [Defendant] and Charles [Mansfield] that I would stay on only until a sale is consummated but no longer." Feureisen Decl. Ex. K (Magnotta Aff. ¶ 8). Then, at her deposition in July 2013, Ms. Magnotta testified as follows concerning her plans to stay at RD Dental:
Q. So is it fair to say that you told [Defendant] that you weren't sure what your plans were?
A. I told them that I would stay through the sale of the contract. My intentions were to - not to stay. I couldn't give a specific number of days, how long I was going to stay.
Q. So did you say you were going to stay a day?
A. In that conversation, no.
Q. Did you say you were going to stay a month?
A. No, I never said a specific time....
Q. Now, this is the same conversation that you described earlier which took place after the contracts were ...